-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CoJojDDmD1TQiyI2o8q0KF2yU7x1t511MYaSR2xjBpvYSGoQ5gETQLbqDqhcb5EN QtdiBPaLPjy4f5g/aP7MMQ== 0001047469-98-005440.txt : 19980217 0001047469-98-005440.hdr.sgml : 19980217 ACCESSION NUMBER: 0001047469-98-005440 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980212 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOARDWALK CASINO INC CENTRAL INDEX KEY: 0000915281 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 880304201 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-12780 FILM NUMBER: 98534607 BUSINESS ADDRESS: STREET 1: 3750 LAS VEGAS BLVD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89109 BUSINESS PHONE: 7027352400 MAIL ADDRESS: STREET 1: 3750 LAS VEGAS BLVD SOUTH CITY: LAS VEGAS STATE: NV ZIP: 89109 10QSB 1 FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended: DECEMBER 31, 1997 Commission file number 1-12780 ----------------- ------- BOARDWALK CASINO, INC. ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) STATE OF NEVADA 88-0304201 - ------------------------ ------------------------------------ (State of incorporation) (I.R.S. Employer Identification No.) 3750 LAS VEGAS BOULEVARD SOUTH, LAS VEGAS, NEVADA 89109 ------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code (702) 735-2400 -------------- - ------------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---------- ---------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as the close of the period covered by this report: Class Outstanding at December 31, 1997 - ----------------------------- -------------------------------- Common Stock, $.001 par value 7,179,429 Transitional Small Business Disclosure Format Yes No X ---------- ---------- BOARDWALK CASINO, INC. BALANCE SHEETS ASSETS
DECEMBER 31, SEPTEMBER 30, 1997 1997 --------------- --------------- (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 1,972,100 $ 2,236,018 Receivables, net of allowance for doubtful accounts of $13,276 and $8,276. . . . . . . . . . . . . . . . . . . . . 1,306,443 1,258,170 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191,945 130,436 Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 650,900 746,965 --------------- --------------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 4,121,388 4,371,589 --------------- --------------- PROPERTY AND EQUIPMENT, net of accumulated depreciation of $9,750,112 and $8,885,392 . . . . . . . . . . . . . . . . 56,532,818 57,305,457 --------------- --------------- OTHER ASSETS: Deferred costs, net of accumulated amortization of $721,589 and $583,158. . . . . . . . . . . . . . . . . . . . . . . . 1,278,330 1,416,761 Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173,385 173,385 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,968 100,969 --------------- --------------- Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1,552,683 1,691,115 --------------- --------------- Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 62,206,889 $ 63,368,161 --------------- --------------- --------------- --------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,378,595 $ 1,520,268 Construction accounts payable. . . . . . . . . . . . . . . . . . . . . . 39,390 461,126 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,177,770 3,224,525 Accrued interest expense . . . . . . . . . . . . . . . . . . . . . . . . 1,723,493 3,426,870 Related party payables . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 400,000 Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 600,000 Current portion of obligations under capital leases. . . . . . . . . . . 2,073,304 2,517,920 Term debt classified as current, net of original issue discount of $3,815,476 and $3,875,773. . . . . . . . . . . . . . . . . 41,184,524 41,124,227 --------------- --------------- Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . 50,077,076 53,274,936 --------------- --------------- Obligations under capital leases, less current portion . . . . . . . . . 1,457,403 1,833,477 --------------- --------------- Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 51,534,479 55,108,413 --------------- --------------- COMMITMENTS AND CONTINGENCIES Series A Redeemable Preferred stock, par value $.001, authorized 18,250 shares; 3,250 shares issued and outstanding. . . . . . . . . . . . 3,250,000 - --------------- --------------- SHAREHOLDERS' EQUITY: Preferred stock, $.001 par value; 14,981,750 shares authorized, none issued . . . . . . . . . . . . . . . . . . . . . . . . - - Common stock, $.001 par value; 50,000,000 shares authorized; 7,179,429 issued and outstanding. . . . . . . . . . . . . . 7,179 7,179 Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 22,405,083 22,435,083 Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . (14,989,852) (14,182,514) --------------- --------------- Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . 7,422,410 8,259,748 --------------- --------------- Total liabilities and shareholders' equity . . . . . . . . . . . . . . $ 62,206,889 $ 63,368,161 --------------- --------------- --------------- ---------------
See notes to financial statements. BOARDWALK CASINO, INC. STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1997 1996 ------------ ----------- REVENUES: Casino . . . . . . . . . . . . . . . . . . . . $ 6,395,768 $ 5,219,626 Rooms. . . . . . . . . . . . . . . . . . . . . 3,145,440 3,278,229 Food and beverage. . . . . . . . . . . . . . . 1,657,166 1,484,656 Other. . . . . . . . . . . . . . . . . . . . . 433,338 476,186 ------------ ----------- Gross revenue. . . . . . . . . . . . . . . . 11,631,712 10,458,697 ------------ ----------- Less promotional allowances. . . . . . . . . . . (467,732) (513,845) ------------ ----------- 11,163,980 9,944,852 COSTS AND EXPENSES: Casino . . . . . . . . . . . . . . . . . . . . 4,151,173 3,145,333 Rooms. . . . . . . . . . . . . . . . . . . . . 1,254,340 1,205,274 Food and beverage. . . . . . . . . . . . . . . 1,661,358 1,519,699 Other. . . . . . . . . . . . . . . . . . . . . 67,464 76,416 Selling, general and administrative. . . . . . 1,796,198 1,668,680 Depreciation and amortization. . . . . . . . . 1,003,150 823,204 ------------ ----------- 9,933,683 8,438,606 ------------ ----------- Income (loss) from operations. . . . . . . . . . 1,230,297 1,506,246 ------------ ----------- OTHER (INCOME) EXPENSE: Interest income. . . . . . . . . . . . . . . . (326) (41,101) Interest expense . . . . . . . . . . . . . . . 2,004,303 1,964,157 Interest capitalized . . . . . . . . . . . . . - (192,286) ------------ ----------- 2,003,977 1,730,770 ------------ ----------- Income (loss) before income taxes. . . . . . . . (773,680) (224,524) Income tax provision . . . . . . . . . . . . . . - - ------------ ----------- Net income (loss). . . . . . . . . . . . . . . . (773,680) (224,524) Preferred stock dividends. . . . . . . . . . . . (33,658) - ------------ ----------- Net income (loss) applicable to common stock . . $ (807,338) $ (224,524) ------------ ----------- ------------ ----------- BASIC EARNINGS PER COMMON SHARE: Net income (loss). . . . . . . . . . . . . . . $ ( .11) $ ( .11) Net income (loss) applicable to common stock . ( .11) ( .11) DILUTED EARNINGS PER COMMON SHARE: Net income (loss). . . . . . . . . . . . . . . ( .11) ( .11) Net income (loss) applicable to common stock . ( .11) ( .11) ------------ ----------- ------------ ----------- WEIGHTED AVERAGE COMMON SHARES OUTSTANDING . . . 7,179,429 7,179,429 ------------ ----------- ------------ -----------
See notes to financial statements. BOARDWALK CASINO, INC. STATEMENT OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, 1997 1996 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (773,680) $ (224,524) ----------- ----------- Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 1,003,150 823,204 Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . 5,000 -- Amortization of original issue discount . . . . . . . . . . . . . . . 60,297 49,194 Changes in operating assets and liabilities (Increase) decrease in receivables. . . . . . . . . . . . . . . . (53,273) (357,968) (Increase) decrease in inventory . . . . . . . . . . . . . . . . . (61,509) (15,897) (Increase) decrease in prepaid expenses. . . . . . . . . . . . . . 96,065 (145,072) Increase (decrease) in payables and accrued expenses . . . . . . . (2,347,197) 1,616,847 ----------- ----------- Net cash provided (used) by operating activities . . . . . . . . . . . . (2,071,147) 1,745,784 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . (92,081) (1,091,843) (Increase) decrease in deferred costs . . . . . . . . . . . . . . . . -- (2,788) ----------- ----------- Net cash provided (used) by investing activities . . . . . . . . . . . . (92,081) (1,094,631) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments of notes and contracts payable . . . . . . . . . . (600,000) (421,540) Related party payables. . . . . . . . . . . . . . . . . . . . . . . . 100,000 -- Principal payments of capital lease obligations . . . . . . . . . . . (820,690) (207,797) Issuance of preferred stock, net of issuance costs. . . . . . . . . . 3,220,000 -- ----------- ----------- Net cash provided (used) by financing activities . . . . . . . . . . . . 1,899,310 (629,337) ----------- ----------- Net increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . (263,918) 21,816 Cash and equivalents, beginning of period. . . . . . . . . . . . . . . . . 2,236,018 4,772,549 ----------- ----------- Cash and equivalents, end of period. . . . . . . . . . . . . . . . . . . . $ 1,972,100 $ 4,794,365 ----------- ----------- ----------- ----------- SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,647,382 $ 155,874 SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Property and equipment acquisitions financed by contracts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 92,832
See notes to financial statements. BOARDWALK CASINO, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: NATURE OF OPERATIONS Boardwalk Casino, Inc. ("BCI") was formed in July 1993 for the purpose of operating a casino and a hotel (the "Boardwalk Hotel and Casino") in Las Vegas, Nevada. The accompanying unaudited condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Although management believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these interim condensed financial statements be read in conjunction with the Company's most recent audited financial statements and notes thereto included in the Company's 10-KSB for the fiscal year ended September 30, 1997. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows for the interim period presented have been made. Operating results for the period ended December 31, 1997, are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 1998. BOARDWALK CASINO, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED: PROMOTIONAL ALLOWANCES The retail value of hotel accommodations, food and beverage provided to customers without charge is included in gross revenues and then deducted as promotional allowances to arrive at net revenues. The estimated costs of providing such promotional allowances have been classified as gaming expenses through interdepartmental allocation. RECLASSIFICATIONS Certain amounts in the quarter ended December 31, 1996 financial statements have been reclassified to conform with the quarter ended December 31, 1997. 2. ACQUISITION AGREEMENT, GOING CONCERN AND MEMORANDUM OF UNDERSTANDING: On December 22, 1997, the Company entered into a merger and acquisition agreement (the "Acquisition Agreement") with Mirage Resorts, Incorporated ("Mirage") where the Company agreed to be acquired by Mirage Resorts. In connection with the Acquisition Agreement, Mirage has entered into separate purchase agreements (the "Stock Agreements") with certain selling shareholders of the Company to purchase their respective shares of common and preferred stock. The Stock Agreements, which are subject to regulatory approval, provide Mirage with an approximate 53% interest in the Company. The Acquisition Agreement also authorizes Mirage to purchase all of the remaining outstanding shares (the remaining 47% interest) of the Company's common stock for $5.00 per share (the closing price of the Company's common stock on the day prior to the execution of the Acquisition Agreement was $4.16). Completion of the Acquisition Agreement is subject to regulatory approval and approval of a majority of the Company's shareholders and is to be completed by no later than June 30, 1998 or the Acquisition Agreement is subject to termination and the Company will become liable to Mirage for $1,000,000. Under the terms of the Stock Agreements, the selling shareholders have agreed with Mirage to vote in favor of the Acquisition Agreement, should such vote take place prior to the closing of Stock Agreements. Under the terms of the Acquisition Agreement, all issued and outstanding warrants and stock options (other than options issued under the Company's 1994 Stock Compensation Plan or Outside Director's Plan) will terminate or constitute only the right to receive the excess, if any, of the per share Merger consideration ($5.00) over the per share exercise price of such warrant or option. BOARDWALK CASINO, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 2. ACQUISITION AGREEMENT, GOING CONCERN AND MEMORANDUM OF UNDERSTANDING, CONTINUED: As part of the Stock Agreements, Mirage (i) purchased from one of the selling shareholders the $5,000,000 note payable by the Company and due on September 30, 1998 and (ii) acquired a land parcel from one of the selling stockholders which is adjacent to the Company's hotel-casino and currently under lease to the Company. One of the selling shareholders has agreed to terminate rights granted under the Memorandum of Understanding executed in October 1997, for consideration of approximately $3,700,000 from Mirage. During fiscal 1997, and prior to the execution of the Acquisition Agreement and the Stock Agreements, Mirage acquired the $40,000,000 First Mortgage Notes (the "BCI Notes") from the previous noteholder in a private placement transaction. In connection with the Acquisition Agreement, Mirage has agreed to defer the March 31, 1998 interest payment on the BCI Notes until September 30, 1998, at the Company's option (the "Deferral Option"). Interest will accrue on the deferred interest at the same rate as the BCI Notes (16.5%) and will also be due and payable on September 30, 1998. Mirage also waived its redemption rights under the BCI Notes which become effective upon a change in control. Notwithstanding the Deferral Option, management of the Company believes that the combination of existing cash and cash flows from operations will not be sufficient to meet the Company's obligations as they become due during fiscal 1998. These obligations include scheduled interest payments on the BCI Notes (approximately $6,600,000 for the year) and the scheduled interest and principal repayment on the $5,000,000 note payable due September 30, 1998. Management expects that the need for cash will be significantly relieved upon completion of the Acquisition Agreement and merger with Mirage. However, as more fully described above, the Acquisition Agreement is subject to certain conditions, including regulatory and shareholder approvals. Should the Acquisition Agreement not be approved, or should the closing be delayed, the Company would not have sufficient resources to pay interest and scheduled principal of the indebtedness acquired by Mirage, without modification of the terms of such indebtedness. There is no assurance that the Acquisition Agreement will be approved, that such approval would be received on a timely basis, nor that modifications to the terms of the indebtedness would be obtained, if necessary. Accordingly, these matters raise substantial doubt about the ability of the Company to continue as a going concern. The final outcome of these matters is not presently determinable and the December 31, 1997 financial statements of the Company do not include any adjustment that might result from the outcome of this uncertainty. BOARDWALK CASINO, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 2. ACQUISITION AGREEMENT, MEMORANDUM OF UNDERSTANDING AND GOING CONCERN, CONTINUED: MEMORANDUM OF UNDERSTANDING AND SALE OF REDEEMABLE PREFERRED STOCK On October 27, 1997, the Company entered into a Memorandum of Understanding (the "Memorandum"). A major shareholder had previously lent the Company $5,000,000 under a note payable due September 23, 1998. Under the terms of the Memorandum, the shareholder purchased preferred stock of the Company and acquired a right to purchase additional shares of preferred stock. The Memorandum called for the Company to issue 3,250 shares of $.001 par value, 6% non-voting, cumulative redeemable preferred stock, series A ("Preferred Stock") at a price of $1,000 per share to certain related parties. The offering generated proceeds of $3,250,000, before deducting offering costs of $30,000 paid by the Company, from the preferred stock issuance which were used to make the Company's September 30, 1997 interest payment in relation to the BCI Notes and retire a $600,000 uncollateralized note payable. The Preferred Stock has a liquidation preference over the Company's common stock in the event of liquidation and the Company shall be permitted to redeem the Preferred Stock upon the written request of any holder thereof on or after April 1, 2005 at a price of $1,000 per share, plus all accrued and unpaid dividends. The Memorandum includes an option issued to one of the above related parties to purchase up to an additional 15,000 shares of Preferred Stock at a purchase price of $1,000 per share. The option expires on September 29, 1999. The Memorandum also restricts the Company from modifying, extending or changing the strike price of the terms of any of the warrants to purchase common stock outstanding as of the date of the Memorandum. The shareholder also agreed to undertake a feasibility study of a $20 million development on the land (the "Project"), with a termination fee of $2 million payable by the Company to the shareholder upon the occurrence of certain events which interfere with or negatively impact the Project. On December 22, 1997, the shareholder agreed to terminate all rights granted under the Memorandum for consideration of approximately $3,700,000 from Mirage. BOARDWALK CASINO, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 3. EARNING PER COMMON SHARE: Earnings per share is based on the weighted average number of shares of common stock outstanding during each period. Warrants and options to purchase common stock which were issued in 1994 through 1996 were excluded from the calculation of earnings (loss) per share, as their inclusion would have been anti-dilutive (by reducing the loss per share). 4. COMMITMENTS AND CONTINGENCIES: The Company has pending certain legal actions and claims incurred in the normal course of business and is actively pursuing the defense thereof. In the opinion of management, these actions and claims are either without merit or are covered by insurance or will not have a material adverse effect on the Company's financial position or results of operation or cash flows. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Form 10-QSB and other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company) contains statements that are forward-looking, such as statements relating to plans for future expansion and other business development activities as well as other capital spending, financing sources and the effects of regulation (including gaming and tax regulation) and competition. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to development and construction activities, dependence on existing management, debt service (including sensitivity to fluctuations in interest rates), domestic or global economic conditions, changes in federal or state tax laws or the administration of such laws and changes in gaming laws or regulations (including the legalization of gaming in certain jurisdictions). RESULTS OF OPERATIONS Income from operations has decreased $275,949 or 18.3% to $1,230,297 for the three months ended December 31, 1997 compared to income from operations of $1,506,246 for the three months ended December 31, 1996. The results of operations for the first quarter ended December 31, 1997 reflects the increased competition with hotel room rates and the effects of an increase in the minimum wage rate, non reoccurring legal fees of $139,000 and depreciation expense increased approximately $180,000. THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1996 The Company had income from operations of $1,230,297 in the first quarter of 1998 compared to income from operations of $1,506,246 in the first quarter of prior year, a decrease of $275,949. The $275,949 decrease in operating income was primarily due to a greater increase in expenses than the associated increase in revenues. The first quarter net revenues were $11,163,980 compared to $9,844,852 for the same period in fiscal 1997, an increase of 12.3% ($1,219,128). Total costs and expenses increased 17.7% ($1,495,077) to $9,933,683 for the first quarter in fiscal 1998, from $8,438,606 during the same period in fiscal 1997. CASINO OPERATIONS Gaming revenues increased 22.5% ($1,176,142) to $6,395,768 for the first quarter in fiscal 1998, from $5,219,626 when compared to the same period in fiscal 1997. The increase was due to: (i) increased race and sports book activity that generated an additional $940,504 (47.8%) to $2,906,548 in revenue for the current quarter from $1,966,044 for the first quarter last year, (ii) increased slot machine revenue of $282,978 (11.9%) to $2,665,999 for the current quarter from $2,383,021 for the first quarter last year and (iii) table game revenues decreased $47,340 (5.4%). Casino expenses increased $1,005,840 (32.0%) to $4,151,173 for first quarter in fiscal 1998 from $3,145,333 for the same period of 1997. The increase in casino expenses were due to: (i) additional race wire fees of $527,484 (ii) additional labor costs of $155,320, (iii) additional slot participation fees of $138,205, (iv) costs of providing promotional expenses increased by $117,234 and (v) an increase in supplies of $41,827. ROOM OPERATIONS Gross room revenues decreased $132,789 or 4.1%, to $3,145,440 for the first quarter 1998 from $3,278,229 for the comparable quarter in fiscal 1997. Room nights available were 58,437 for the current quarter and the same period of last year. Room nights occupied increased 3.58% to 46,642 room nights occupied for the first quarter of fiscal year 1998 from 45,747 for the same period of 1997. The occupancy percentage increased to 79.8% for the first quarter of 1998 compared to 76.4% for the same period of fiscal 1997. The average room rate decreased $4.22 to $67.44 for the current period. Promotional allowance for rooms increased $25,717 (33.6%) to $102,263 for the current period compared to $76,546 for the same period of 1997. Net room revenues decreased $158,506 or 5.0% to $3,043,177 for the first quarter of fiscal 1998 from $3,201,683 for the same period of 1997. Hotel expenses increased $49,066 or 4.1%, to $1,254,340 for first quarter 1998 from $1,205,274 for the same period of 1997. The sales department and promotional programs account for the increase in expenses. FOOD AND BEVERAGE OPERATIONS Gross food and beverage revenues increased $172,510 or 11.6%, to $1,657,166 for the first quarter 1998 from $1,484,656 for the comparable quarter in fiscal 1997. The increase in gross food and beverage revenues was primarily attributable to the opening of the second floor buffet in the later part of the second quarter 1997. Promotional allowance for food and beverage decreased $71,831 (16.4%) to $365,468 for the current period compared to $437,299 for the same period of 1997. Net food and beverage revenues increased $244,341 or 23.3% to $1,291,698 for the first quarter of fiscal 1998 from $1,047,357 for the same period of 1997. Food and beverage expenses increased $141,659, or 9.3%, to $1,661,358 for first quarter 1998 from $1,519,699 for the same period of fiscal 1997. This is the direct result of increased cost of sales and additional wages and benefits resulting from the opening of the second floor buffet. OTHER REVENUES AND EXPENSES Other revenues decreased $42,848, or 9.0%, to $433,338 for the first quarter 1998 from $476,186 for the same period of fiscal 1997. The decrease of other revenues consists principally from the conversion of previous rental space to gaming space. Other expenses decreased $8,952, or 11.7%, to $67,464 for the first quarter 1998 from $76,416 for the same period of fiscal 1997. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses increased $127,518, or 7.6%, to $1,796,198 for first quarter 1998 from $1,668,680 for the same period of fiscal 1997. Advertising expense increased $139,639 in conjunction with the opening of the second floor buffet. DEPRECIATION AND AMORTIZATION Depreciation and amortization totaled $1,003,150 in the first quarter in fiscal 1998, reflecting a $179,946 (21.9%) increase over the first quarter in fiscal 1997 amount of $823,204 due to the depreciable costs associated with the completed second floor buffet and meeting rooms. OTHER INCOME AND EXPENSES Interest income decreased $40,775 to $326 in the first quarter of fiscal 1998 compared to $41,101 for the first quarter of 1997. Interest income relates to the Company's investments in marketable securities, principally U.S. treasury securities and short-term corporate commercial paper. Interest expense increased to $2,004,303 in the first quarter of fiscal 1998 from $1,964,157 in the first quarter of fiscal 1997. Approximately $192,286 of interest was capitalized in the first quarter of fiscal year 1997 in connection with the Expansion, compared to none for the same period of 1998. The expenditures of the second floor buffet and meeting rooms gave rise to the interest capitalized in the first quarter fiscal 1997. INCOME TAX PROVISION No income tax benefit was recorded. The Company has incurred losses and cannot carryback such loss to offset taxable income in prior years and therefore has a net operating loss carryforward. LIQUIDITY AND CAPITAL RESOURCES The Company had unrestricted cash assets of $1,972,100 (3.2% of total assets) at December 31, 1997 compared to $2,236,018 (3.5% of total assets) at September 30, 1997. The ratio of current assets to current liabilities was .082 to 1 at December 31, 1997 and .082 to 1 September 30, 1997. The Company's operations generated a negative cash flow of approximately $2,071,141, due primarily to the October 29, 1997 payment of $3,300,000 in interest payable September 30, 1997. Investing activities for fiscal 1997 used approximately $92,081 for various equipment and improvements to the physical buildings. Financing activities provided approximately $1,899,310 from the issuance of preferred stock which raised $3,220,000 and $100,000 from a related party. Such proceeds were offset by $1,420,690 of principal payments on long-term debt notes payable and capital leases during fiscal 1997. On December 22, 1997, the Company entered into a merger and acquisition agreement (the "Acquisition Agreement") with Mirage Resorts, Incorporated ("Mirage") where the Company agreed to be acquired by and merge into Mirage. In connection with the Acquisition Agreement, Mirage has entered into separate purchase agreements (the "Stockholder Agreements") with certain selling shareholders of the Company to purchase their respective shares of common and preferred stock. The Stockholder Agreements, which are subject to regulatory approval, provide Mirage with an approximate 53% interest in the Company. The Acquisition Agreement also authorizes Mirage to purchase all of the remaining outstanding shares (the remaining 47% interest) of the Company's common stock for $5.00 per share (the closing price of the Company's common stock on the day prior to the execution of the Acquisition Agreement was $4.16). Completion of the Acquisition Agreement is subject to regulatory approval and approval of a majority of the Company's shareholders and is to be completed by no later than June 30, 1998 or the Acquisition Agreement is subject to termination and the Company will become liable to Mirage for $1,000,000. Under the terms of the Stockholder Agreements, the selling shareholders have agreed with Mirage to vote in favor of the Acquisition Agreement, should such vote take place prior to the closing of Stock Agreements. As part of the Stockholders Agreements, Mirage (i) on January 5, 1998 purchased from one of the selling shareholders the $5,000,000 note payable by the Company which is due on September 30, 1998, and (ii) did acquire a land parcel from one of the selling stockholders which is adjacent to the Company's hotel-casino and currently under lease to the Company. One of the selling shareholders has agreed to terminate rights granted under the Memorandum of Understanding executed in October 1997, for consideration of approximately $3,700,000 from the Mirage. During fiscal 1997, and prior to the execution of the Acquisition Agreement and the Stock Agreements, Mirage acquired the $40,000,000 First Mortgage Notes (the "BCI Notes") from the previous noteholder in a private placement transaction. In connection with the Acquisition Agreement, Mirage has agreed to defer the March 31, 1998 interest payment on the BCI Notes until September 30, 1998, at the Company's option (the "Deferral Option"). Interest will accrue on the deferred interest at the same rate as the BCI Notes (16.5%) and will also be due and payable on September 30, 1998. Mirage also waived its redemption rights under the BCI Notes which becomes effective upon a change in control. Notwithstanding the Deferral Option, management of the Company believes that the combination of existing cash and cash flows from operations will not be sufficient to meet the Company's obligations as they become due during fiscal 1998. These obligations include scheduled interest payments on the BCI Notes (approximately $6,600,000 for the year) and the scheduled interest and principal repayment on the $5,000,000 note payable due September 30, 1998 amounting to approximately $5,400,000 and current maturities of short term notes and lease obligations amounting to $2,073,000. Management expects that the need for cash will be significantly relieved upon completion of the Acquisition Agreement and merger with Mirage. However, as more fully described above, the Acquisition Agreement is subject to certain conditions, including regulatory and shareholder approvals. Should the Acquisition Agreement not be approved, or should the closing be delayed, the Company would not have sufficient resources to pay interest and scheduled principal of the indebtedness acquired by Mirage, without modification of the terms of such indebtedness. There is no assurance that the Acquisition Agreement will be approved, that such approval would be received on a timely basis, nor that modifications to the terms of the indebtedness would be obtained, if necessary. Accordingly, these matters raise substantial doubt about the ability of the Company to continue as a going concern. The final outcome of these matters is not presently determinable and the December 31, 1997 financial statements of the Company do not include any adjustments that might result from the outcome of this uncertainty. BOARDWALK CASINO, INC. PART II - OTHER INFORMATION Item 1. Legal Proceedings - None Item 2. Changes in Securities - None Item 3. Defaults Upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders - None Item 5. Other Information - None Item 6. Exhibits and Reports on Form 8-K - None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BOARDWALK CASINO, INC. ---------------------- Registrant Date 02/12/98 /s/ Forrest Woodward, II ------------------------ President and Chief Operating Officer Date 02/12/98 /s/ Louis J. Sposato --------------------- Chief Financial Officer EX-27 2 EXHIBIT 27
5 3-MOS SEP-30-1997 DEC-31-1997 1,972,100 0 1,319,719 (13,276) 191,945 4,121,388 66,282,930 (9,750,112) 62,206,889 50,077,075 0 3,250,000 0 7,179 7,415,232 62,206,889 0 11,163,712 0 9,933,683 0 0 2,004,303 (773,680) 0 (773,680) 0 0 0 (807,338) .112 .112
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